Deutsche Boerse cuts profit target

Bloomberg

Deutsche Boerse AG Chief Executive Officer Carsten Kengeter resigned amid growing shareholder pressure after he became embroiled in an insider-trading probe. The company also said it isn’t likely to meet its full-year earnings targets.
The CEO will step down on December 31 “in order to allow the company to focus its energy back onto clients, business
and growth and to avoid fur-ther burdens caused by the ongoing investigation,” Deutsche Boerse said in a statement. No replacement was named.
Kengeter had faced criticism from investors after prosecutors in Frankfurt said they were investigating his stock trades. At issue was the purchase of 4.5 million euros ($5.3 million) of Deutsche Boerse shares in December 2015, before it emerged that the exchange was seeking to take over London Stock Exchange Group Plc — a deal that ultimately failed. Union Investment, a top 30 shareholder, said it welcomed the CEO’s resignation. “It’s better to move on from the probe rather than let this investigation linger and potentially distract the company, executive management team and employees,” Keefe, Bruyette & Woods analyst Kyle Voigt said in a note.
Kengeter resigned a week after LSE Group CEO Xavier Rolet said he would step down at the end of 2018. Rolet was seen ending his LSE career on a high note. But hours after Kengeter’s departure was announced, Deutsche Boerse said its prior 2017 forecast — which called for an increase in net income by 10 percent to 15 percent, and a gain in revenue of 5 percent to 10 percent — was probably unachievable.
Analysts at UBS Group AG had said earlier this week that the exchange could lower its earnings growth target for the year. Deutsche Boerse’s goals for 2018 are also “overly optimistic,” given the third-quarter earnings and current volumes, RBC Capital Markets analysts including Peter Lenardos wrote in a note. Revenue rose 3 percent to 576.3 million euros in the third quarter from a year earlier on growth from the company’s Clearstream unit and the index business of its market data and services division. That more than offset a “weak” performance in index derivatives caused by low equity market volatility, its filings show
Deutsche Boerse is “a somewhat disciplined organization, so normally I would say that their path wouldn’t change much” following the Kengeter announcement, said Rich Repetto, an analyst at Sandler O’Neill & Partners LP in New York. “However, given the fallout of the LSE deal, I think their
direction was a bit uncertain
to begin with.”
A deal to settle the insider-trading probe started to unravel as soon as it was reached. The company accepted a fine of 10.5 million euros, as well as a 500,000 euro fine for Kengeter himself, to end the case, but a Frankfurt court refused to sign off on the deal.
The prolonging of the investigation created a time squeeze for Deutsche Boerse’s board — German regulators would only start their assessment of whether he was fit to run the company after the conclusion of the proceedings in Frankfurt, but the CEO’s contract was set to expire in March.
The German financial watchdog Bafin said it would no longer pursue a planned suitability check of Deutsche Boerse management as it would have been unable to complete the check before Kengeter’s announced departure. “It was
with deep regret that the supervisory board accepted this request and unanimously thanked Carsten Kengeter for his vision and leadership,” the exchange said. The company has called the insider trading allegations “unfounded,” while Kengeter has said such an offense betrays “his innermost conviction.”